06/05/2015

By Martin Campbell, MD, Ormsby Street


Late invoice payment is one of the most important issues for any small businesses, impacting cash-flow and future growth. So when at the outset of the 2015 election campaign, George Osborne announced plans for late invoice payers to be named and shamed on an official Government website, he was addressing a significant issue. From April 2016, any employer with more than 250 staff will be required to disclose their payment terms, how quickly they pay invoices, the proportion paid beyond agreed terms and any interest owed on overdue bills.

Research last year by the Asset Based Finance Association (ABFA) revealed that businesses with a turnover under £1 million have to wait an average of 71 days to receive payment, so this legislation is to be welcomed. But that should not and cannot, stop small businesses from taking control of their own destiny when it comes to late payment. These measures will not stop late payment, they merely hope that any reputational damage will be enough to convince large companies to pay on time.

As any small business owner will tell you, this is unlikely to have the desired effect. Many big businesses are already fairly upfront about the time they take to pay invoices – they do it because they can. But small businesses can address this themselves – here’s how to tackle the problem of late invoice payment:

Think big

I’ve heard the term ‘big business’ used as an insult by small businesses in the past, used to describe unscrupulous and uncaring attitudes. Those certainly aren’t attributes to aspire to, but that’s not to say that small businesses can’t learn from their big business counterparts in other ways.

I’ve worked in massive global businesses, as well as founding and managing smaller businesses, and there is definitely an attitudinal difference. Big businesses are generally much better at looking after the pennies than small businesses. They are able and willing to pay invoices as late as possible, improving cash-flow which in turn helps impacts growth. They do this because they can. There is no particular care of duty that big businesses ‘owe’ smaller businesses and they know that managing their finances in this way is better for their business.

So what’s to stop smaller businesses adopting a similar approach? Nothing, and neither is there anything wrong with managing your finances more efficiently. I’m not suggesting that small businesses adopt a policy of late invoice payment, but there is no reason why they can’t adopt a slightly more ruthless attitude when it comes to paying invoices and checking the finances of those they do business with.

Carry out financial health checks

We recently conducted analysis relating to users of CreditHQ, our free online tool that provides straightforward, actionable insight to small businesses who check the financial health of customers, suppliers and partners. The analysis revealed that the average late payment pursued within CreditHQ was £6,142 – a sizable amount for any small business.

Most small businesses do not realise that they can check the financial health of almost any company they might do business with. They also assume that people will pay on time. Sadly, this is rarely the case.

The best way to safeguard against this is by checking the financial status of every trading partner or supplier, before a small business begins working with them. This can be done via Companies House, or also by using a free and simple tool such as CreditHQ. It gives a strong indication of a companies’ ability and likelihood to pay invoices on time and is a true asset in dealing with late invoice payment, allowing a small business to address problems before they even occur.

Any small business that is unsure of whether to work with an organisation should also seek the opinion of other companies that have traded with them. If they have had a less than positive experience, that’s a decent indicator that it might be a company you should avoid doing business with, if at all possible.

Take a stand against late payment

If you have concerns about late payment but still decide to work with a company, then there are still measures you can put in place to help address this. Be bold in your initial contract discussions about payment terms and make it clear that you cannot and will not tolerate late payment. You can also make sure customers receive invoices as early as possible. This involves posting your month end invoices before the end of the month, ensuring they are with the accounts department in good time and leaving less room for excuses for late payment.

Finally, there should never be a reticence about chasing for late payment. If you are owed money then it is your absolute right to request payment until you get it. Whilst you might feel uncomfortable doing so, There can be a concern on the part of some small businesses to chase for late invoice payment, chasing for payment demonstrates that you run your business properly.

So although George Osborne’s ‘name and shame’ website is in many ways a laudable move, small businesses would better combat late payment by taking pro-active measures themselves. It’s more empowering, more effective and if more companies did it, late payment would be much less of an issue.